The Current State of the Panamanian Real Estate Market
By Don Winner - The Panama Guide, Published: June 18, 2008
Real estate, more specifically, Panamanian real estate - a subject literally hundreds of thousands of people around the world are paying attention to, at least in some degree or another. Real estate markets in the United States and parts of Europe are slowing down, but for some apparently inexplicable reason, Panama continues to chug away quite nicely.
This article examines the current state of affairs as a Panama news story - what's going on right now in the Panama real estate market. Here I'm focusing primarily on the changing demographic of real estate clients and buyers as compared to two years ago. In addition I make a weak attempt to predict the future and what the market might look like two years down the road. (more)
Historically Tight Economic Connections to the USA: For more than a century there was an exceptionally tight connection between the fortunes of the Republic of Panama and the United States of America. Panama was created as a nation, in no small part, because the USA wanted to build the Panama Canal. From its birth in 1903 to 1999 Panama was little more than a territory or protectorate of the United States. There's a saying in Panamanian Spanish that "when the US catches a cold, Panama gets the flu." Any economic downturn or recession in the United States was generally felt in Panama, only in a more pronounced manner because the Panamanian economy is, relative to the United States, tiny.
Recent Diversification: The Torrijos-Carter treaty of 1977 was fully implemented at 12:00 noon on 31 December 1999, turning full and complete control of the entirety of the Isthmus of Panama to the control of the Panamanian government for the first time in history. Besides the obvious effects on the ground - the withdrawal of all US military forces from Panamanian soil and the handing of the Panama Canal over to Panamanian control - there was a more subtle, unexpected consequence of the implementation of that treaty. Panama is now seen as a truly unique, sovereign, and independent nation, rather than a "Banana Republic," territory, or protectorate of the United States of America. As a result, investors from around the world are now more willing to put their money to work in Panama because of the greatly reduced US influence here.
Booming Skyline: Unless you've spent the last few years under a rock you know there's an ongoing real estate boom in Panama that started in about mid-2004 or so. We can quibble over when the boom started, but for practical purposes the money started flowing in concurrent with the start of the administration of Panama's current President Martin Torrijos.
Torrijos was elected on a "zero corruption" platform, a reflection of the disgust among Panamanians over the outright abuses of power of the outgoing administration of Mireya Moscoso. The centerpiece of the Torrijos strategy was to expand the Panama Canal, and in order to do that they were going to have to get their domestic monetary house in order, which they did. Again, almost as an unexpected consequence, the real estate boom followed along shortly thereafter. Torrijos started out with the intent of expanding the Panama Canal, and by laying down the prerequisite economic base, they (rather unintentionally) created a virtual gold rush of real estate investment.
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Panama Real Estate in 2006
Too Good To Be True:
Most investors and developers spent the year putting together deals and hawking new projects, and for the most part they could not believe their eyes. 160 apartments selling out in a new building at one trade show - it was almost too good to be true. In fact, it was. Now, two years later, rising costs of fuel, labor, and raw materials have squeezed profit margins for those guys who sold the entire building at "pre-construction" prices. A few (like the Ice Tower) decided it would make more sense to just tear up the plans and return money to everyone, rather than go through with the plan and to construct the building for a new loss.
Real Estate in Panama in 2007
The Year of the Crane:
Construction crane, that is. There are now more than 200 projects in some state of completion scattered around Panama City. Most of these projects are being managed be smart developers who have now figured out the math. You have to sell about 45% of the apartments at pre-construction prices (discounts) in order to secure financing. Banks want to see signed sales contracts as a guarantee before they pony up the several millions of dollars you're going to be needing to build the building. Then, once construction actually starts and the cranes come out of the ground, the value (measured in price per square meter) starts to rise. Once the building is complete, those few apartments still available for sale are worth practically twice as much as an identical apartment sold two or three years prior at pre-construction.
Right, with all of that as preamble, where are we today? The next big thing in the Panamanian real estate market will be the delivery of inventory - all of those 200+ buildings under construction will start to be finished and delivered. Some buyers will be needing financing to close, others will pay cash, and others (investors and speculators) will place those properties on the market to flip them for a profit.
Too Many to Track: There are so many projects under construction that keeping track of them all would be a full time job - and in reality no one is trying. Each individual builder or promoter is just worried about their project. Each individual buyer limits themselves to worrying about what they have purchased. No one is tracking the whole picture very well, including the Government of Panama. Considering the scope and importance of the issue, one would think they would be doing a better job of it, but they are not.
Economic Downturn in the US: Without a doubt the tightening of the economy in the United States, and particularly the problems and complications within the US real estate market, have definitely had an impact on the Panamanian real estate market. The ratios of "who is buying" have changed.
"More Europeans" According to Stuart Jackson Greatbanks of GSL Real Estate, "where two years ago only about 5% of our clients were from Europe, that number has easily doubled." Stuart says the shrinking numbers of buyers from the USA have more than been replaced by newly interested buyers from Europe. "The weakening of the US dollar means anyone holding British Pounds or Euros has a significant advantage in the Panamanian real estate market, which is based on the US dollar," he said.
How Much Of A Change? Alright, I can understand that, but how much of a shift is there really when you do the math? When you look at it the numbers are astounding. Two years ago one Euro was worth approximately $1.25 in US dollars. Today, two years later, that same Euro is now worth $1.55 - that's a 25% increase in just two years.
The effect on the ground in Panama can be astounding - an apartment costing $200,000 US dollars effectively costs 25% less, or $150,000 to a European, making the Panamanian real estate market incredibly attractive. Tack on the fact that real estate in Europe is generally overpriced as it is, and all of a sudden European buyers are starting to notice that Panama exists. Copa and KLM have teamed up to start non-stop service from Amsterdam to Panama City, meaning that most Europeans can now fly into Panama from almost anywhere with just one stop.
The Changing Buyer Demographic: According to Lucy Haines from Panama Realtor, "There's no doubt that we are seeing a shift in the demographics of our customers and clients - we are seeing more Europeans in general and particularly more buyers from England and Spain." She pointed out that the people who are coming to Panama from Europe seem to be more interested in starting businesses that are not necessarily related to the Real Estate market. "Many of our US buyers were looking for opportunities to buy land in order to build a real estate development or community, while the European buyers are coming to Panama and opening businesses, and many times those businesses are more oriented towards providing different kinds of services to the Panamanian economy and not so much focused just on the real estate market."
Picking Up the Slack: Lucy added that "without a doubt, new buyers from other parts of the world are making up for any reduction in interest from US buyers. Clients from the USA are still our #1 customer, and sales to those clients remain strong, but we are now starting to see interest from places that we had not anticipated - India, for example." She added that there is now a lot more to choose from with regards to the overall offering available to potential buyers. And overall, they continue to see a growth in sales, rather than a decline.
"More Picky and Cost Conscious" According to Scott Wilson from Fabrege Developments, "our buyers now seem to be coming from Venezuela, Argentina, Canada, Russia, Spain and the UK. We see some interest from the US but now its minimal." Scott described now, overall, interest seems to be shifting away from Panama City and moving more toward the beaches and mountain properties. With regards to the impact on US buyers on the Panamanian real estate market, Scott said that "now US buyers are looking at the less expensive properties." He credits the falling value of the US dollar as giving a big advantage to buyers from Europe - "Everyone else has a big advantage because the US dollar is so much cheaper from a foreign exchange standpoint; individuals from other countries are finding that Panama is a better deal because they can get more for their money now than they could two years ago."
Bottom Line Still Solid:
Scott confirmed what others in the Panamanian real estate market are saying, that the bottom line remains solid, but the overall market and demographics of buyers are changing, and that sales from buyers from other parts of the world are effectively replacing the falloff or reductions from US buyers. "US buyers now tend to be more picky and cost conscious - people no longer feel the need to buy in Punta Pacifica, and to a certain extent the retail prices in Panama City have risen to a price point where people, and especially US buyers, are starting to look elsewhere." Lucky for Panama, there is a diversity of types of property being offered in this market to include city, beach, and mountain properties, and without a doubt the demand for city properties is not as high as it was two years ago.
Scott added "from a supply standpoint and from a marketplace demand standpoint, there is much more beach property, and particularly beach condos that are both available now and that will be available in the near future than there were two years ago. There are at least two dozen new developments going in along both the Pacific and Caribbean coasts that are attracting buyers to Panama, and those properties were not being offered for sale two years ago."
That's About What I Thought: In talking to all these guys, they pretty much confirmed what I already suspected. The Panamanian real estate market is still relatively healthy. The demographics of the buyers is changing somewhat, and there's a significant shift toward European buyers as a result of the falling US dollar against the Euro.
US buyers are still coming, but they are just not as anxious to buy a condominium in Panama city, both due to rising prices and the effects of the economy back home on their decision making processes. In many cases retirees who are looking to Panama as a potential retirement destination will have to sell off their existing home in the US before they make that move, and tightness within the US economy, and particularly the US real estate market, is giving them practical reasons for pause. But even still, buyers from the "rest of the world" are more than picking up the slack.
Our thanks to Don Winner for this article
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